[ON ORGANIZATION LETTERHEAD]
Director Kathy Kraninger
ATTN: Comment Intake
Bureau of Consumer Financial Protection,
1700 G Street NW
Washington, DC 20552
Re: Proposal to Rescind Payday Rule’s Ability-to-Repay Requirements
Docket No. CFPB-2019-0006, RIN 3170-AA80
Dear Director Kraninger:
We are writing this comment to urge you to reconsider your proposal to rescind the Consumer Bureau’s 2017 rule requiring payday lenders to determine whether borrowers can repay their loans in full when due and still meet basic living expenses and major financial obligations.
The high-cost, short-term, non-bank lending market is diverse and thriving in Illinois. Illinois allows a variety of different products: payday loans; installment payday loans; and, small consumer loans. Illinois also permits auto title loans, but these loans are longer than 45 days, which places them outside the scope of the 2017 Rule. The interest rates charged by lenders on all four products are extremely high. On payday loans, the average interest rate is 316 percent. Further, more than half of all payday loan borrowers in Illinois earn $30,000 or less per year. Against a backdrop of high-cost loans and low-income consumers, requiring payday lenders to determine whether borrowers can repay their loans is a critical and common sense protection for consumers whose financial security is already precarious. For a low-income consumer, the consequences of a high-cost loan that becomes a never-ending cycle of debt can be more severe and immediate because they have less of an economic cushion in terms of assets and less flexibility in terms of deciding when and how to pay creditors versus paying for basic needs such as food, diapers, and the like. Even a loan payment of less than $100 can mean that a consumer will skimp on or ration a basic need, such as a prescription medication.
I know you are concerned about the impact the ability-to-repay requirements will have on access to credit. First, there have always been limits on access to credit – “credit,” of course, is the same as debt as soon as the bills become due — and when such limits have been ignored, such as during the sub-prime mortgage crisis, families and entire communities have been devastated. Some communities in Chicago, especially lower-income communities and communities of color, are still trying to recover from the cataclysmic effects of mortgage loans made without regard to borrowers’ ability to repay. Those loans stripped families of wealth and left neighborhoods pockmarked with foreclosed homes. We support access to safe and affordable credit, not high-cost debt traps.
Even assuming that the ability-to-pay protections would cause a tightening in the market for payday loans, consumers would still have access to the other products listed above. In the states that do not have such a variety of products, those states would have the option to respond to a tightening in the market by developing laws and/or regulations to address that concern. This is the proper role of the states. Sixteen states have completely stopped payday loans from trapping their residents in debt by establishing interest rate caps of no higher than 36%. South Dakota voted resoundingly in November 2016 to impose a 36-percent rate cap on all loans.
This issue is at the core of your agency’s mission. Our country’s most vulnerable consumers are in need of protection. The free market is failing to protect them because many consumers who obtain payday loans are desperate; they are unable to use their purchasing power to secure a better price. This is precisely the type of situation that demands regulatory intervention. Requiring payday lenders to determine whether a borrower can repay a loan is the right way to protect a vast number of consumers from financial ruin. Please reconsider your proposal to rescind this requirement.
Very truly yours,
 Illinois-specific data is compiled by a statewide database established in 2005. Compilations of the data are published in an annual “Trends Report.” For the most recent report, go to https://www.idfpr.com/dfi/ccd/pdfs/IL_Trends_Report%202017.pdf.